The hidden costs of cheaper oil
Source Louis Proyect
Date 04/06/26/20:32

June 26, 2004

China Pays a Price for Cheaper Oil


HONG KONG, June 23 - With toxic lead finally disappearing from most of the world's gasoline, a new air pollution fight is emerging around the globe over how much sulfur to allow in fuel. Rapidly developing countries like China, India, Thailand, Mexico and Brazil, where ownership and use of cars and trucks is soaring, are on the front lines.

High levels of sulfur contamination occur naturally in some crude oil, especially from the Mideast and Russia. This "sour" oil is ordinarily harder to sell and fetches a lower price than "sweet" low-sulfur crude, because it is more difficult to refine and because environmental laws in the United States and Europe already impose tight ceilings on sulfur in fuel, limits that are set to grow still tighter over the next decade.

But this year, oil producers are pumping and selling all the oil they can to meet surging demand, and the extra oil they are able to bring to market is, to a great extent, high in sulfur. With sweet crude commanding the highest prices, many refineries in China and elsewhere are buying cheaper sour crude, and turning it into fuels that may contain many times more sulfur than the gasoline and diesel sold in the United States or Europe.

Environmentalists call sulfur the world's biggest single contributor to air pollution. It forms noxious gases like sulfur oxides, and it causes diesel engines to spew more soot. And high-sulfur fuel quickly ruins the catalytic converters installed on new gasoline-powered cars, defeating one of the main efforts in countries like China to cut down on the harm that vehicles do to air quality.

"Sulfur is definitely the lead of the future," said Robert Cox, the fuels manager at the International Petroleum Industry Environmental Conservation Association, a London-based trade group supported by oil companies.

The oil industry has called on automakers to develop new catalytic converters that are more sulfur tolerant, while acknowledging that sulfur is a significant problem, especially in developing countries with limited budgets. Mr. Cox said that in September or October the trade association would issue its recommendations for what levels of sulfur are attainable for countries at various levels of economic development, adding that "sulfur has got to be the next issue."

The problem is especially acute in China, where car sales have been rising by close to 80 percent a year, creating huge traffic jams and contributing to some of the world's worst air pollution. At the same time, Chinese refineries have emerged as the world's most aggressive buyers of high-sulfur crude oil.

"They really need to ratchet down very quickly on their emissions standards, or their cities are going to become unbearable," said Michael P. Walsh, a former top American air-quality regulator who now works as a consultant to the Chinese government and other developing countries on air-quality issues.

The World Bank has just released a report contending that developing countries should reduce sulfur levels as quickly as possible, though not necessarily to American and European levels. Instead, each country should set its sulfur ceiling based on the emissions-control equipment, if any, that has been installed in local vehicles, said Todd Johnson, a senior environmental specialist at the bank who helped write the report.

The problem in China goes far beyond cars, Mr. Johnson said, noting that coal-burning power plants emit large quantities of sulfur as well.

Most auto industry executives in China are reluctant to discuss the problem publicly, because the government controls the refining industry. Still, they complain privately that the gasoline is so bad in parts of the country that the modern engines and pollution-control equipment now being introduced in cars in China will not run properly on it.

"They are very, very seriously damaged - the malfunction almost entirely stops the function of the catalytic converter, and that doesn't just increase the emissions, it also hurts fuel economy," said an official for one multinational automaker.

Chinese government officials say they are trying to address the issue. "This is a major problem for the gasoline," said Zhang Jianwei, the top civil servant at the China Automotive Technology and Research Center, a government agency that drafts automobile regulations.

Mr. Zhang said his agency was beginning a yearlong nationwide program to test gasoline at service stations and assess its effect on vehicles and their emissions. The results will be submitted to the powerful State Development and Reform Commission.

Automakers doing business in China are so concerned about what sulfur is doing to their cars that a broad coalition, including multinationals like General Motors, Ford, Hyundai and Toyota and domestic manufacturers like First Auto Works and the Dongfeng Automobile Company, is donating money to the agency to pay for the study. BASF, a major chemical company, announced on Wednesday that it would set up a separate fuel-testing program with a unit of the State Environmental Protection Administration.

Foreign and domestic automakers in China are required by regulations to send a sample car of each new model for emissions testing by a third agency, the China Automotive Technology and Research Center, at a cluster of brick buildings in the aging industrial port of Tianjin in northeastern China. The agency has copied the emissions test procedures used in Europe. But to get the vehicles to pass the test, the agency must buy special low-sulfur fuel from the only gas station in Tianjin that sells it, Mr. Zhang said.

Sulfur is not the only problem with the country's fuel supply, the automakers say. Honda now recommends that gasoline filters in its cars be replaced twice as often in China as elsewhere, to catch the sludge sometimes found in Chinese gasoline. Even with that precaution, the company worries about the harm done to its engines and their pollution-control equipment by burning Chinese gasoline.

"Because of the quality of the fuel, the deterioration level will be rather high compared to other countries," said Koji Kadowaki, who just retired from his post as president of Guangzhou Honda.

Chinese ceilings for sulfur in fuel are considerably more lax than those in the United States or Europe, and the automakers say that some of the gasoline and diesel in the country exceeds even those limits. But it is not clear who is producing these fuels.

Evan Jia, a spokesman for Sinopec, China's biggest refining company, said that it was aggressively importing high-sulfur oil because it is $1 a barrel cheaper than sweet crude. The added cost to Sinopec of removing sulfur in the refining process to meet Chinese national standards is as little as 10 cents a barrel, he said, and all of the gasoline and diesel it sells meets those standards.

Mr. Jia said that the company was investing heavily to improve its ability to remove sulfur and that it expected to be able to meet highly strict new sulfur standards that the cities of Beijing and Shanghai plan to impose soon. But while these cities and several others already have somewhat stricter rules than the national standards, the benefits have been limited, because of widespread smuggling of cheaper high-sulfur fuel from smaller cities and rural areas, Chinese environmental experts say.

Mr. Jia acknowledged that some gasoline and diesel in China has very high levels of sulfur, but he said that it was produced by small refineries owned by private companies or local governments, and not by Sinopec or the other main state-owned refiner, PetroChina.

A PetroChina spokesman said that the company imported very little oil and ran its refineries instead mainly on the naturally low-sulfur crude it produces itself in the oil fields of northeast China. The country was self-sufficient in oil until the mid-1990's.

When the Chinese economy boomed and demand started to outrun supply, China initially imported only sweet crude, buying from Indonesia and from Oman, the one country in the Middle East with output that is mostly low in sulfur. But as China has outstripped Japan to become the world's second-largest oil consumer after the United States, it has come to rely heavily on oil from other Mideast countries with much higher sulfur content, according to figures from the International Energy Agency in Paris.

The big question mark for China and other developing countries will be the cost of building better refineries. Investment bankers estimate that China alone will have to spend as much as $10 billion in the next few years to satisfy rising demand for fuel and meet tighter sulfur standards.

"Reducing sulfur in fuel is becoming probably the major battle" in air pollution, said Kelly Sims Gallagher, the director of the Energy Technology Innovation Project at Harvard. "That's going to require a major investment."

© 2004 New York Times

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